AT&T's Troubling Plan to Change HBO   
       
   The telecom giant, which just acquired Time Warner, is seeking to drastically   
   change the premium-cable channel in order to compete with the likes of Netflix.   
   David Sims   
   Jul 9, 2018   
       
   HBO CEO Richard Plepler talks about HBO Now for Apple TV during an Apple event   
   in San Francisco.   
   AP / Eric Risberg   
       
   This past February, HBO added the most U.S. subscribers in its history,   
   boosting its user base by 11 percent (the company has some 142 million global   
   subscribers). The steady growth of the premium-cable and streaming service to   
   $6.3 billion in revenue last year helped power its parent company, Time   
   Warner, to $31.3 billion in revenue-a 7-percent overall jump despite dips in   
   other divisions. Since the telecom giant AT&T began its bid in 2016 to acquire   
   Time Warner, it came to be widely understood that HBO was one of the most   
   prized parts of the deal, which became official in June after a lengthy legal   
   battle.   
       
   The channel's stature is what makes it baffling to learn of reports that the   
   new Warner Media chief executive John Stankey recently lectured HBO employees   
   on the hard times ahead. In the eyes of Stankey, an AT&T veteran, HBO is   
   apparently too small, too nimble, and too boutique-ill-fitted for a media   
   world that's all about size. During a closed-door June 19 conversation with   
   some 150 HBO staff, "Stankey never uttered the word `Netflix,' but he did   
   suggest that HBO would have to become more like a streaming giant to thrive in   
   the new media landscape," reported The New York Times. That means aggressive   
   expansion, with a flood of new shows, to give HBO the kind of massive library   
   Netflix is currently building.   
       
   Netflix is a production company of peerless scale when it comes to TV. It's   
   projected to spend $12 to $13 billion on original programming in 2018;   
   meanwhile, HBO spent $2.5 billion on its shows in 2017. Netflix's strategy is   
   to overwhelm, pumping out fresh content at its subscribers and relying less   
   and less on licensed material it doesn't own. HBO has always had more of a   
   "prestige" bent, taking a very long time to develop its shows and launching   
   them with extreme fanfare, with an eye toward awards. But Stankey seems to   
   view that deliberate pace as a result of laziness, and his desire to upend the   
   network's careful approach to putting out new shows (it only makes a handful   
   per season) could mean the end of HBO as we know it.   
       
   "It's going to be a tough year," Stankey said the June meeting, according to a   
   recording the Times obtained. "It's going to be a lot of work to alter and   
   change direction a little bit." Expanding HBO's viewer base would require more   
   programming, released at a faster pace, well beyond the channel's rotating   
   Sunday night lineup that makes up the core of its original shows. "I want more   
   hours of engagement ... You get more data and information about a customer   
   that then allows you to do things like monetize through alternate models of   
   advertising as well as subscriptions, which I think is very important to play   
   in tomorrow's world," Stankey said.   
       
   HBO's current profit model is simple but effective. People pay a fee   
   (something like $15 a month) to subscribe; HBO uses that money to license   
   movies and produce TV for subscribers to watch. Because of the company's   
   longtime reputation for high-quality, Emmy-winning shows like Game of Thrones   
   and Big Little Lies, plenty of people subscribe, and HBO makes a lot of money.   
       
   Netflix's business approach, again, is about scale and is underwritten by   
   investors. The company has focused on getting more worldwide users and hiking   
   its subscription fee to increase revenues. But producing more original shows   
   means Netflix burns through more money-a March 2017 report found Netflix had a   
   negative free cash flow of $2.1 billion. A few months later, the company said   
   in a letter to shareholders that it would remain in the negative for years,   
   but that the investment would crucially help the company spread across the   
   globe.   
       
   As he assumes control at Warner Media, Stankey is correct in identifying HBO   
   as the company's only obvious Netflix rival. But the kind of staggering growth   
   he wants will necessarily disrupt the calculated approach to development that   
   has distinguished HBO for two decades. Due in part to the sheer quantity of   
   its output, Netflix has managed to greenlight some critical hits. But it has   
   not yet won an Emmy for best drama, comedy, or miniseries, while HBO still   
   rules the roost at awards season. The premium-cable network has put out shows   
   like The Sopranos, The Wire, Sex and the City, Deadwood, Six Feet Under, and   
   Veep that helped define the so-called "Golden Age of Television"-which is now   
   receding in the wake of Netflix's content deluge. In response, Stankey wants   
   HBO to become another titan in this era of streaming behemoths.   
       
   In this age, as Stankey made clear, "hours of engagement" are what matter   
   most. Executives have long factored viewing data extracted from subscribers   
   into their programming decisions, but online services can mine our viewing   
   preferences much more minutely. The more data, the easier it is to understand   
   what people want-at least that's been Netflix's guiding principle as it makes   
   hits like House of Cards and Stranger Things, which are calibrated to play on   
   audience nostalgia. But the idea that numbers alone will drive good or popular   
   art is ludicrous; Netflix has made plenty of shows that haven't hit the mark   
   with audiences, like any other network.   
       
   Stankey isn't the only executive worried about the rise of Netflix. Disney is   
   preparing to launch its own streaming service, and its proposed acquisition of   
   Fox would help fill out its library of properties. The future of media will   
   certainly revolve around subscription-based streaming services. But Netflix is   
   turning into a kind of broadcast-TV network: a big umbrella for lots of   
   different kinds of programming. Founded more than 45 years ago, HBO has long   
   been a challenge to broadcast television, staking its reputation on offering   
   something different. As the slogan went, it's not TV, it's HBO. Now, Stankey   
   wants to make it TV.   
       
       Why the Trump Administration Is Suing to Block the AT&T-Time Warner Merger   
       Derek Thompson   
       
       
   Regards,   
       
   Roger   
      
   --- Klaatu barada Nickto   
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